RBI Governor very well-articulated this crisis which will not only impact emerging market equity and emerging market currency, but also other developed countries from Europe which is currently facing high inflation problem.
In our column, we have many times discussed subject like “Double Whammy” equals to high inflation + high interest rate and another subject like “Europe – Epicenter of next financial crisis?”. The way we understand third storm as a mixture of “Double Whammy” & “Europe – Epicenter of next financial crisis”.
Dollar Index is a reference point of Risk-On / Risk-Off indicator.
In case of economic turmoil, inflation concern or US Fed increase rate to historic high will trigger plight of currency to safe assets that is US bond market.
In case of economic stability and expansionist monitory policy, money will flow to high beta currency, bonds and equity market where there strong possibility of high return.